National Blog

Ben Bernanke keeps getting it wrong

In anticipation of tomorrow's Senate vote on Audit the Fed, Ben Bernanke has resumed his attacks on the bill. Fortunately, the indispensable Paul-Martin Foss of the Carl Menger Center, refutes Bernanke's arguments:

Argument: The Fed Is Already Audited

When most people think of audits, they think of financial audits. Bernanke attempts to use that to confuse people as to the purpose of Audit the Fed. The Federal Reserve Board has been required for over a decade to have an outside auditor audit its financial statements. Per 12 USC 248b:

“The Board Shall order an annual independent audit of the financial statements of each Federal reserve bank and the Board.”

But Bernanke’s assertions mislead in three ways.

Audits of financial statements are not audits of the entire Federal Reserve System and all of its operations and transactions, they are necessarily limited.

The outside auditor is appointed by and answers to the Federal Reserve Board, i.e., the entity being audited.

The Fed Inspector General is appointed by and responsible to the Chairman of the Board of Governors of the Federal Reserve System, again, the head of the entity being audited.

......

The full audit called for by Audit the Fed would necessarily include not just a financial audit (if that were determined to be necessary), but performance and operational audits as GAO is accustomed to carrying out. Remember that when the bill that allowed the very limited auditing of the Federal Reserve System was first being debated, GAO testified that it could not fully audit the Federal Reserve System without access to the Fed’s monetary policy and open market operations (emphasis added):

In response to Chairman Bernanke’s assertions at the time Audit the Fed was first being debated, Congressman Paul wrote a letter to the Chairman offering to discuss how the language of Audit the Fed could be modified to assuage his concerns. A letter was sent through the mail, and I hand-delivered a copy to Federal Reserve General Counsel Scott Alvarez after he testified before the House Financial Services Committee, asking him to present it to Chairman Bernanke since Dr. Paul had not received any response from the Fed. We never did receive a response, yet we still tried to modify the language of the bill to provide that audits of the Fed could not deal with anything less than six months old. It’s one thing for Bernanke and the Fed to object that Congress could look over the Fed’s shoulder the day after. But when the sponsor of Audit the Fed offers to work with the Fed to change the language to address their concerns and receives no response, you have to assume that Bernanke’s argument isn’t showing genuine concern about the bill’s language but is rather an attempt to quash the bill and ensure that the Fed’s operations remain in the shadows. If the Fed isn’t willing to negotiate, you have to assume that their arguments aren’t being made in good faith.

Argument: Congress Wants To Undermine The Fed’s Independence

Audit the Fed’s original sponsor, Congressman Ron Paul, has no desire to see Congress involving itself in monetary policy at all, and he has a 30-plus year track record of trying to get the government out of the monetary arena. As far as I know, the bill’s current sponsor, Senator Rand Paul, also has no desire to see Congress meddling in monetary policy. Both of them would like to see the government, both Congress and the Fed, out of dictating monetary policy at all. But absent the abolition of the Federal Reserve System and an understanding on the part of Congress that monetary policy is harmful to the economy, the fact remains that the Federal Reserve does engage in monetary policy. And as long as the Fed does engage in monetary policy, should its operations not be open to and accountable to Congress and the American people? This bill is really just about openness and transparency of those monetary policy operations. Ben Bernanke, Janet Yellen, and their fellow travelers in Washington, DC realize that, but they don’t really want transparency. If Congress really wanted to involve itself in the day to day dealings of monetary policy, it could draft a bill to do just that. But Congress hasn’t done that and Audit the Fed wouldn’t authorize that either.